041194 High Hog Prices Boost Smithfield Foods

Chicago, IL - Smithfield Foods Inc., the largest U.S. pork producer, reported quarterly earnings jumped 61% on high hog prices, strong pork exports and the acquisition of a pork processor.

Smithfield, whose shares were up 3%, also forecast sharply higher results in the current quarter. Pork exports have risen and beef exports have suffered as a result of the discovery of a U.S. case of mad cow disease in December 2003.

For the fiscal second quarter ended Oct. 31, Smithfield's earnings rose to $58.4 million, or 52 cents per share, from $36.2 million, or 33 cents per share, a year earlier. That matched the Wall Street average forecast of 52 cents, compiled by Reuters Estimates, and was in line with the company's guidance of 50 cents to 52 cents.

"We are expecting an extremely strong third quarter. We already have finished the first month of the third quarter and I can tell you our profits are up substantially over the same period last year, and we expect that be the case in December and January," Smithfield Chairman Joseph Luter said during a conference call with analysts and reporters.

The second-quarter quarter results as well as the strong outlook were largely expected but still drew support from analysts.

After the earnings report, Credit Suisse First Boston raised its fiscal 2005 earnings estimate for Smithfield to $2.16 per share from $2.04.

In October 2003, Smithfield bought Farmland Foods, which at the time was the nation's No. 6 pork processor. The acquisition has gone smoothly and was lauded both by Smithfield and analysts.

"Smithfield has grown over the years primarily through extraordinarily astute acquisitions, and Farmland has been another notch on the belt generating $104 million" in earnings before interest, taxes, depreciation and amortization, David Nelson, CSFB's food analyst, said in a research report.

Smithfield, based in Smithfield, Virginia, has the nation's largest hog herd and sells about 14 million hogs a year. Most are sold to Smithfield pork plants but some go to competing pork companies.

"The demand for pork, particularly exports, has been excellent. This demand has fueled strong live hog prices that have reached near-record levels for this time of year," Luter said in the earnings statement. Pork exports increased because bans on U.S. beef resulted in overseas customers buying more pork. Countries banned U.S. beef after the U.S. case of mad cow disease was discovered.

The hog unit's operating profit surged to $98.2 million in the second quarter from $3.4 million a year earlier.

High hog prices pinched pork processing margins, and operating profits for the company's pork unit slipped 6% to $39.9 million from $42.5 million.

Smithfield's beef unit, No. 5 in the United States, reported a small loss after one- time charges. Smithfield said second-quarter revenue was $2.72 billion, up from $2.06 billion a year earlier.

During the quarter, the company bought four cattle feedlots, and Luter said it may buy more.

"We will probably get bigger in the cattle feedlot business," he said in the conference call.

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